* Euro rises on Ifo, stages best week vs dollar since May
* Dollar/yen jumps above 85 yen then retreats
* Traders cite yen intervention talk, but not confirmed (Updates prices)
By Vivianne Rodrigues and Steven C. Johnson
NEW YORK, Sept 24 (Reuters) - The dollar fell against a basket of currencies on Friday to its lowest level since February as stronger-than-expected data in Europe and a drop in U.S. durable goods orders hurt demand for the greenback.
The dollar also hit its lowest in more than a week against the yen. Earlier it rose on talk Japan had again tried to weaken its currency but reversed gains against the yen as doubts grew about about whether Japan had entered the market.
An unexpected rise in the German Ifo business climate index beyond a three-year high lifted the euro after a sell-off on Thursday. For details, see [ID:nLDE68N0L3]
Reports on U.S. durable goods orders and new home sales for August were considered soft and reinforced the view the Federal Reserve may provide additional monetary easing to help the economy. [ID:nN23141647] and [ID:nN2377778]
"The dollar is on the outs now, as people are keen to take risk elsewhere, and the data supported that," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
However, he said the market may be ripe for a correction, which could come if the euro tests the $1.35-$1.3520 area, wherein lies the 50 percent retracement of a decline that began above $1.50 in November and bottomed below $1.19 in June.
"You've also got gold nearing $1,300 and the S&P near 1,150 -- nice round, psychologically important numbers -- so if we get above these levels, you could see a correction."
The euro EUR= rose 1.3 percent to $1.3490. It was up 3.3 percent since Monday for its best week since May. An index of the dollar against six major currencies .DXY, slid to 79.281, its lowest level since February.
The euro rose despite lingering euro zone debt worries and record highs in the spreads of Irish and Portuguese bond yields over their German counterparts. [GVD/EUR]
"The Ifo data reversed some of the euro negativity," said Jeremy Stretch, head of currency strategy at CIBC in London.
Alan Ruskin, Deutsche Bank's global head of G10 FX strategy, added the euro was also helped by the "clean out" of shorter-term euro long positions on Thursday and subsequent rebound.
Against the yen, the dollar was unchanged at 84.30 JPY=. It had reached 84.12 yen, according to Reuters data, its lowest since Sept. 15, when Japanese authorities confirmed they had intervened to sell yen in the currency market.
But in Asian trade, the dollar climbed suddenly to 85.38 yen from about 84.55, sparking talk the Japanese authorities may have intervened again.
"There was an overnight spike in dollar/yen, which sparked talk of intervention, but that has not been backed up and we have seen it dribbling back lower," said Stretch.
The dollar also hit a two-and-a-half year low of 0.9780 Swiss francs CHF=, below a reported barrier at 0.9800.
UPWARD PRESSURE ON YEN
The euro EURJPY=R also gained 1.2 percent to 113.62 yen.
Japanese officials stayed silent on whether they had intervened. [ID:nTKU106266].
Japan intervened for the first time in six years last week in repeated action that pushed the yen down from a 15-year high of 82.87 per dollar and shunted it above 85.
The dollar stayed above 85 yen until the Fed signaled this week it might take more quantitative easing steps, putting widespread selling pressure on the greenback.
Some dealers speculated an apparent lack of complaint by U.S. President Barack Obama about last week's intervention when he met Japanese Prime Minister Naoto Kan on Thursday was seen as tacit approval by Washington of Japan's action.
Obama, who urged Chinese premier Wen Jiabao to take more action on the yuan, did not mention currencies when he met Kan, Kyodo news agency reported. (Reporting by Vivianne Rodrigues and Steven C. Johnson; additional reporting by Gertrude Chavez-Dreyfuss in New York and Jessica Mortimer in London; Editing by Chizu Nomiyama)